The national index of home price changes is positive but the market isn't COVID-proof
New data shows a rise in home prices in May but there is likely to be pain ahead for home owners and investors in Canada’s housing market.
The Teranet-National Bank National Home Price Index gained 1.1% in May compared to the previous month, in line with the average gain for the period over the past 10 years.
The data shows a year-over-year gain of 5.95%, accelerating from 5.27% in April and 3.84% in March. The index tracks percentage changes across 11 metropolitan markets.
Regionally, there were gains for Ottawa-Gatineau (2.2%), Toronto (2.1%), Halifax (1.8%) Hamilton (1.6%), Edmonton (0.9%), Montreal (0.7%), Winnipeg (0.7%) and Quebec City (0.6%). Vancouver’s index was flat on the month while Calgary (−0.2%) and Victoria (−0.5%) were down from the previous month.
But despite gains, the HPI report highlights underlying data that shows how the Canadian housing market is slowing down.
The first is the 22% year-over-year decline in the number of sales pairs from which May indexes were derived. It was the largest year-over-year decline since April 2013 and a clear break in the upward trend that was taking place earlier.
Secondly, there was a slowdown in the seasonally adjusted raw Composite index, which rose only 0.2% in May after three months of gains topping 0.8%.
Home price decline ahead
The report’s authors note that in their view “declines in home prices lie ahead” and there are other economic concerns such as rising unemployment.
Earlier this month, CMHC tightened its underwriting practices for insured mortgages citing increased risk for losses due to falling home prices.
Putting the data in context, “demand for housing may decrease due to a reduction in immigration and would-be first-time homebuyers not being able to qualify for a mortgage loan,” the report says.
Additionally, supply may be fuelled by homeowners unable to meet mortgage payments and for that reason will look to sell their home. This would also likely lead to declining prices.
Last month the HPI was up 1.1% from the previous month, a rise equal to the average for May over the last 10 years. #Ottawa-Gatineau, #Toronto and #Halifax saw the largest increases. To dig into more #houseprice trends in Canada read the full report: https://t.co/GYu9wXdLAF pic.twitter.com/1f1J8YxWEw
— House Price (@hp_index) June 17, 2020
